COURT OF APPEAL FOR ONTARIO
Goudge, Cronk and Armstrong JJ.A.
BETWEEN
Lawrence John Simmons and Anchordale Holdings Limited
Plaintiffs (Appellants)
and
Christian J. Hamber and Harrison Pensa LLP
Defendants (Respondents in Appeal)
C. F. MacKewn, for the appellants
Russell M. Raikes, for the respondents
Heard: September 7, 2010
On appeal from the judgment of Justice R. M. Pomerance of the Superior Court of Justice, dated December 15, 2008.
1The appellants appeal the dismissal of their action for solicitor’s negligence.
2Christian Hamber, a partner of the law firm of Harrison Pensa LLP, was retained to do the necessary legal work in connection with two commercial transactions involving the appellants and the L. J. Simmons Group Ltd. (“the Simmons Group). The appellants assert that Mr. Hamber should have recommended that they receive independent legal advice and that he should have discussed alternatives to the proposed transactions.
3For the reasons that follow, I would dismiss the appeal.
BACKGROUND
4John Simmons and his personal holding company, Anchordale Holdings Ltd., were shareholders of the Simmons Group. The two other shareholders of the Simmons Group were Walter Webb and Daniel Van Houtte.
5Anchordale was also shown on the financial statements of the Simmons Group as a creditor in the amount of $54,389 (later reduced to $44,389). There was some question as to the origin of this debt. However, the chartered accountant for the Simmons Group testified that he assumed the origin of the debt was not one of substance as it was a reflection of excess dividends that had been declared but not paid.
6The Simmons Group was engaged in the real estate brokerage and appraisal business.
7As a result of the precarious personal financial position of Mr. Simmons, he decided to declare personal bankruptcy. This led to a discussion among Messrs. Simmons, Webb and Van Houtte as to the future of the Simmons Group. A decision was made by these three principal shareholders that Mr. Simmons and Anchordale would surrender their shares in the Simmons Group. In respect of the Anchordale debt, there had been earlier discussions with the Simmons Group’s accountant about getting the debt off the books of the company to improve its position in obtaining bank financing. The evidence was that if the debt was removed from the books of the company, a note to the financial statements, which cast a negative light on the financial position of the Simmons Group, could also be removed. These discussions ultimately led to a proposal that the Anchordale debt would be converted to a class of preference shares that were not retractable, but redeemable at the option of the corporation.
8As a result, Messrs. Simmons, Webb and Van Houtte agreed to proceed with the surrender of the shares and the conversion of the debt. The trustee in bankruptcy testified that if neither the shares nor the debt had any economic value, they would not be assets, which would be of interest to the bankrupt estate. He testified that he gave that opinion to Mr. Simmons. Mr. Simmons testified that he was content to give up his shares in the Simmons Group because he did not want his own financial difficulties to compromise the position of the young people in the firm.
9The documentation for the transactions was prepared by Mr. Hamber who was the solicitor to the Simmons Group. He was also the solicitor to Anchordale. Mr. Simmons testified that it was Mr. Webb’s responsibility to retain and instruct lawyers for anything to do with the affairs of the Simmons Group. Mr. Webb retained Mr. Hamber and his law firm, Harrison Pensa LLP, in respect of the transactions.
10The transactions were closed on September 14, 1998 with Messrs. Simmons, Webb and Van Houtte at Mr. Hamber’s law firm. Mr. Hamber reviewed all of the documentation to be signed that day. He asked if there were any questions and there were none. As the three individuals were about to sign the documents, Mr. Simmons, according to Mr. Hamber, asked “So, what am I signing?” Both Mr. Webb and Mr. Van Houtte, according to Mr. Hamber, expressed some exasperation. Mr. Simmons testified that he had simply asked, “What are my options?” and Mr. Van Houtte replied, “That will depend on events in the future.” According to Mr. Simmons, he received assurances from Mr. Webb that his shares would be restored after he was discharged from bankruptcy. Mr. Webb and Mr. Van Houtte both denied that there were any such assurances given. The trial judge concluded that, “[t]he overwhelming weight of the evidence compels the conclusion that there was never any agreement to restore Simmons’ position.”
11Mr. Hamber testified that after Mr. Simmons’s confusion, he asked the parties if they needed to discuss matters any further. Mr. Hamber did not recall if and to what extent they discussed matters further, but shortly thereafter, he asked if they wanted to proceed with the signing. They indicated that they did. The documents were signed and Mr. Simmons read each document before he signed it. He testified that he read and understood what it was that he signed.
12The trial judge accepted the evidence of Mr. Hamber as to what transpired at the meeting.
13On December 4, 1998, Mr. Simmons made a voluntary assignment in bankruptcy. In the statement of affairs signed by Mr. Simmons, at the time of his assignment in bankruptcy, he stated that in October 1998, he had transferred his shares in the Simmons Group to other shareholders. He further stated those shares had no value and that he received no money in exchange. Mr. Simmons did not advise the trustee that upon discharge from bankruptcy, he would be restored as a shareholder of the Simmons Group. There was no discussion with the trustee about any restoration of the debt owed to Anchordale after his discharge from bankruptcy.
14Some seven years later, after a dispute with Messrs. Webb and Van Houtte over appraisal fees, and after Mr. Simmons had been terminated from his employment by the Simmons Group, he commenced this action against Mr. Hamber and his law firm for solicitor’s negligence.
15The essence of the claim against Mr. Hamber and his law firm is found in paragraph 5 of the Statement of Claim:
Prior to the bankruptcy of the plaintiff Simmons, the defendant Hamber organized the legal services necessary in a transaction which had the net effect of denuding Simmons of any interest in Simmons Group and converting the indebtedness of Simmons Group to Anchordale from a debt position to … non-voting, non-participating preference shares which were not retractable thereby emasculating the indebtedness apparently owed by Simmons Group to Anchordale. In acting the defendant Hamber and the defendant firm acted for all parties involved, Simmons and Anchordale not being independently represented and not being fully protected.
16Mr. Hamber was the solicitor of both the Simmons Group and Anchordale for at least a couple of years prior to 1998. All of his instructions related to the two companies came from Mr. Webb, whom he understood to be the manager of the Simmons Group, and responsible for giving instructions to lawyers and accountants. The accountant for the Simmons Group, Richard Ferris, told Mr. Hamber that the Anchordale debt was a bogus debt that had no real substance and was causing difficulty for the company in obtaining financing.
17Mr. Hamber was made aware that Mr. Simmons was contemplating a voluntary assignment in bankruptcy. For this reason, he satisfied himself that the proposed transactions did not run afoul of the applicable bankruptcy legislation and the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29.
18Nil value was attributed to the shares of the Simmons Group on the advice of Mr. Webb and Mr. Ferris. This valuation was consistent with previous share transactions that Mr. Hamber acted on in 1996.
19Mr. Hamber did not recommend to Mr. Simmons that he seek independent legal advice in respect of these transactions. When asked, “Why not?” he replied:
A. I didn’t think it was necessary. He struck me as a sophisticated business person who had been through previous restructurings as I could see from my review of the various minute books. He seemed to indicate he knew what he was signing and it didn’t seem necessary.
20In respect of whether Mr. Hamber advised Mr. Simmons that the share transaction was necessary, the following exchange took place:
Q. Did you advise Mr. Simmons that there was no need to transfer these common shares because they had no value?
A. No, the parties had agreed to implement the transaction in a certain way, and I saw my role as fulfilling their request.
21In respect of Anchordale, Mr. Hamber said that he dealt with Mr. Webb, whom he considered the designate of Mr. Simmons. Mr. Hamber was pressed in cross-examination on this issue:
Q. Did you feel any obligation to advise Anchordale as a corporation directly, or Mr. Simmons as the sole controlling shareholder directly, that this transaction conceivably could have an adverse effect upon them?
A. That would have been completely inconsistent with the pattern with which I was retained by Anchordale. I was instructed through Mr. Webb.
22The trial judge dismissed the action against Mr. Hamber and his law firm and in doing so said:
I find that these claims are entirely lacking in merit. Whether or not Hamber owed a duty of care to Simmons and Anchordale, he discharged his obligations in a proper, prudent, responsible and highly professional manner. Hamber acted on the instructions that he was given by Webb, the representative of the corporation who had the requisite authority. Hamber independently confirmed that his instruc-tions were not contrary to the law. He drafted the documents to effect the corporate transactions. At the meeting of September 14, 1998, he took pains to ensure that all present read and understood the content and consequences of what was to be signed. He reported in a prompt and responsible fashion to the designated representative of the corporation.
Christian Hamber acted throughout with competence and professionalism. While no expert evidence was adduced on the standard of care in this context, I am hard pressed to imagine what else Mr. Hamber might have done in the proper discharge of his duties.
THE ACTION AGAINST MR. WEBB, MR. VAN HOUTTE, AND THE SIMMONS GROUP
23Mr. Simmons and Anchordale commenced a separate action against Mr. Webb, Mr. Van Houtte and the Simmons Group to set aside the transactions. He included a claim for wrongful dismissal. The action was tried by the same trial judge and at the same time as the solicitor’s negligence action. The trial judge dismissed the claims to set aside the transactions but awarded significant damages to Mr. Simmons for wrongful dismissal.
24An appeal in respect of the damages awarded in the wrongful dismissal action was taken by the defendants in that action and was heard at the same time as this appeal. The wrongful dismissal appeal resulted in a modest reduction of the award of damages. See Simmons v. Webb, 2010 ONCA 584, released September 13, 2010.
THIS APPEAL
25This appeal raises the following issues:
(i) Did Mr. Hamber err in failing to recommend that the appellants receive independent legal advice?
(ii) Did Mr. Hamber have a duty to discuss with Mr. Simmons and Anchordale alternatives to these trans-actions?
(iii) If Mr. Hamber and his law firm breached their duty, is there any evidence of damages?
(i) Did Mr. Hamber err in failing to recommend that the appellants receive independent legal advice?
26The appellants rely on subrule 2.04(3) of the Rules of Professional Conduct of the Law Society of Upper Canada which provides:
A lawyer shall not act or continue to act in a matter when there is or is likely to be a conflicting interest unless, after disclosure adequate to make an informed decision, the client or prospective client consents.
The commentary to subrule 2.04(3) contains the following statement:
While subrule 2.04(3) does not require that a lawyer advise the client to obtain independent legal advice about the conflicting interest, in some cases, especially those in which the client is not sophisticated or is vulnerable, the lawyer should recommend such advice to ensure that the client’s consent is informed, genuine, and uncoerced.
27The appellants also rely on the judgment of this court in Davey v. Woolley et al (1982), 1982 CanLII 1787 (ON CA), 35 O.R. (2nd) 599. The case at bar is very different from Davey. In Davey, the agreement in question was extremely complex and required a high degree of sophisticated legal advice. The vendor and purchaser in Davey were both clients of the law firm and a senior partner of the firm had a personal interest in the transaction. It is clear that Davey needed independent legal advice on the facts of that case. Wilson J.A., writing for the court in Davey at page 602, provided a useful statement of the relationship between a solicitor and his/her client:
A solicitor is in a fiduciary relationship to his client and must avoid situations where he has or potentially may develop a conflict of interest: see Boardman et al. v. Phipps, [1967] 2 A.C. 46, [1966] 3 All E.R. 721 at 756. This is not confined to situations where his client’s interests and his own are in conflict although it of course covers that situation. It also precludes him from acting for two clients adverse in interest unless, having been fully informed of the conflict and understanding its implications, they have agreed in advance to his doing so.
28I do not take from either subrule 2.04(3) of the Rules of Professional Conduct or the judgment of this court in Davey that in the circumstances of this case, there was an obligation on Mr. Hamber to recommend to Mr. Simmons that he obtain independent legal advice. It might well have been preferable that he make such a recommendation out of an abundance of caution, but his failure to do so in these circumstances does not constitute a breach of his fiduciary duty or negligence.
29While Mr. Simmons and Anchordale were giving up their shares in the Simmons Group, it was clearly something that Mr. Simmons wanted to do prior to his filing for bankruptcy. Mr. Hamber took his instructions from Mr. Webb (the designate of Mr. Simmons), which was consistent with his previous practice. He was made aware of the intention of Mr. Simmons to make an assignment in bankruptcy and satisfied himself that the transactions were not in conflict with the applicable bankruptcy legislation and the Fraudulent Conveyances Act. No issue has been taken either here or below with Mr. Hamber’s conclusions in that regard.
30On their face, the transactions suggest that Mr. Simmons and Anchordale were adverse in interest to Messrs. Webb and Van Houtte. However, the position of Mr. Simmons and Anchordale must be viewed in the context presented to Mr. Hamber. Mr. Hamber accepted the advice of Mr. Webb that the shares in the Simmons Group had no value. He accepted the advice of both Mr. Webb and Mr. Ferris that the Anchordale debt had no substance. Mr. Hamber was entitled to rely on that information. There was nothing to suggest to Mr. Hamber that either Mr. Simmons or Anchordale were giving up anything of value or that Mr. Simmons did not fully appreciate what he was doing. Indeed, he was of the view that Mr. Simmons was a sophisticated businessman who had been through previous share restructurings, who wanted these simple transactions to proceed and who understood the documents he was signing.
(ii) Did Mr. Hamber have a duty to discuss with Mr. Simmons and Anchordale alternatives to these transactions?
31The appellants submit that Mr. Hamber should have advised them that the transactions were unnecessary since the underlying assets had no value. In paragraph 6 of the statement of claim, the appellants alleged:
In the course of the transaction[s], alternative steps potentially available to the plaintiffs to restructure the holdings in such a way as to transfer the assets to persons in whom they had confidence for their protection were neither discussed, canvassed, nor proffered by the solicitor as a result of which the solicitor and the law firm failed in their duty to the plaintiffs.
32While the submission on appeal changed slightly from the position taken in the statement of claim, both positions appear to be rooted in Mr. Simmons’s claim that there was an agreement to return the assets to him and Anchordale after his discharge from bankruptcy. As indicated above, Mr. Hamber was not aware of any such agreement and the trial judge found that there was none. If there had been such an agreement that may well have raised additional legal and ethical issues but that was not the case.
33Mr. Hamber did not breach his duty to Mr. Simmons and Anchordale by failing to discuss alternatives to these transactions.
(iii) If Mr. Hamber and his law firm breached their duty, is there any evidence of damages?
34The principal relief sought in this appeal is an award of damages in an amount to be assessed by way of a reference.
35At the time these transactions were executed, the evidence is that the Simmons Group shares had no value and that the Anchordale debt was not one of substance. At the time of trial, there was no evidence led to suggest that the situation had changed in respect of any of the underlying assets involved in the transactions.
36In my view, therefore, even if it could be said that Mr. Hamber breached some duty to Mr. Simmons and Anchordale – a proposition that I reject – the plaintiffs have failed to establish a basis upon which the court could order damages.
DISPOSITION
37For the above reasons, I would dismiss the appeal. I would award the respondents their costs of the appeal on a partial indemnity basis fixed in the amount of $12,500 including disbursements and applicable taxes.
RELEASED:
“JAN -7 2011” “Robert P. Armstrong J.A.”
“STG” “I agree S. T. Goudge J.A.”
“I agree E. A. Cronk J.A.”